Photo Credit: BK

I'm not going to argue for any particular strategy here. My main point is this: every valid strategy is going to have some periods of underperformance. Don't give up on your strategy because of that; you are likely to give up near the point of maximum pain, and miss the great returns in the bull phase of the strategy.

Here are three simple bits of advice that I hand out to average people regarding asset allocation:

The first rule is most important, because the most important thing here is avoiding panic, leading to selling risky assets when prices are depressed.  That is the number one cause of underperformance for average investors. The second rule is important, because it is better to earn less and be able to avoid panic than to risk losing your nerve. Rule three just makes it easier to maintain your portfolio; it may not be applicable if you follow a momentum strategy.

Now, about momentum strategies — if you're going to pursue strategies where you are always buying the assets that are presently behaving strong, well, keep doing it. Don't give up during the periods where it doesn't seem to work, or when it occasionally blows up. The best time for any strategy typically come after a lot of marginal players give up because losses exceed their pain point.